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Joakim Westerlund. Photo.

Joakim Westerlund

Professor, Programme director – Master of Data Analytics and Business Economics

Joakim Westerlund. Photo.

Unit Root Inference in Generally Trending and Cross-Correlated Fixed-T Panels

Author

  • Donald Robertson
  • Vasilis Sarafidis
  • Joakim Westerlund

Summary, in English

This article proposes a new panel unit root test based on the generalized method of moments approach for panels with a possibly small number of time periods, T, and a large number of cross-sectional units, N. In the model that we consider the deterministic trend function is essentially unrestricted and the errors obey a multifactor structure that allows for rich forms of unobserved heterogeneity. In spite of these allowances, the GMM estimator considered is shown to be asymptotically unbiased, (Formula presented.)-consistent, and asymptotically normal for all values of the autoregressive (AR) coefficient, ρ, including unity, making it a natural candidate for unit root inference. Results from our Monte Carlo study suggest that the asymptotic properties are borne out well in small samples. The implementation is illustrated by using a large sample of US banking institutions to test Gibrat’s Law.

Department/s

  • Department of Economics

Publishing year

2018-07-03

Language

English

Pages

493-504

Publication/Series

Journal of Business & Economic Statistics

Volume

36

Issue

3

Document type

Journal article

Publisher

American Statistical Association

Topic

  • Probability Theory and Statistics

Status

Published

ISBN/ISSN/Other

  • ISSN: 0735-0015